Belligerence

Belligerence creates nothing but noise. But only if it goes unignored.

Trouble

Opinion over fact makes waste.

Fact over opinion makes haste.

Until opinion claims fact, only making trouble.

Government's role in markets

In a conversation with a microbiologist friend the other day, he complained that the trouble with conservationism is that it assumes the natural world and the human world to be separate things, when in fact, humans are part of the natural world. Depending on your perch, we are either massively influential as in species extinction from habitat loss, or only minutely consequential as in the flow of the jetstream.

It's a proper metaphor for the Keynesian vs. Neoclassical rivalry: a heated academic debate about the role of government in markets and to what degree it should or shouldn't be there.

In fact, government is always a part of markets. That it is more or less involved does not necessarily determine a market's efficiency or lack thereof.

For example, as soon as we agree to live in a community and defend it, we allocate resources (products, currency and time) to defense, and thus influence prices for production, borrowing and labor.

And the argument holds water for simpler things. If we agree through referendum that we should have street signs to help people navigate our neighborhoods, then the government and the makers of signs are linked and their trades and contracts influence widely. People are employed to make and install signs. They spend and invest. Sign-making capacity is consumed for a time as backlogs are worked out. Prices are affected.

If we want free markets in the purest neoclassical sense, we'll have to do it without an army and without street signs. I doubt that we're ready in America to do without either of these things.

From a distance, it appears that Keynes thought this too... and advocated that as long as government is there, it ought to be used as an instrument of good, if at all possible. The counter is that it isn't possible that government can do good, and therefore, it can't be used. The truth, of course, is that government is there... as large a part of the market world as humans can be in the natural world. And it's not going away.

Of course, in the midst of dealings between businesses and governments there is the possibility, indeed perhaps the probability of corruption, especially as institutions become complex and opaque. Corruption hobbles systems and leaves cynicism in its wake. That's what we're really talking about here: failure to lead and to act honestly at all levels of government and business has us believing that that neither can work towards any greater good.

That is why we have regulations. Not, as some would say, to thwart commerce or slow progress, but as tools of common sense and transparency meant to protect against corruption and move markets forward.

Can regulation get out of hand? Sure. Can regulations be improved? Of course, but only when enough of us recognize that we are the government and the businesses that we blame for our troubles. We are also the market with all its freedoms and all its flaws. When we come to see this then we have a chance to engage, debate, compromise, and do the best we can.

Grandma's Gonna Die

My Living Will: If I am lucky to have lived long, and if, in my final fearful minutes I (or anyone around me) call for someone else to spend wildly to hold my body together for another few months, then please... PLEASE LET THERE BE A RATIONAL, RATIONING BUREAUCRAT TO STEP IN AND SAY NO!

An effective health care system will invest in the young and spread risk amongst the old, nothing more. Rationed health care acknowledges the special needs of people at different times of life. If our children land in a health care net, we want them to leap back out with vigor. Early in life the net is there for the protect and propel the person into the future. Later in life the net is there to defend society from things like corruption or from our irrational fear of death.

The health care debate has devolved beyond monied lobbies and hyperbole: it is campaign of fear mongers. Damn-it, Grandma's gonna die. Rationed healthcare isn't sinister, it is patriotic.

We aren't going to get this right until boomers step up and do the right thing: shift health care priority to their kids and grandkids.

Note: Glad to see this article in NYT today: http://www.nytimes.com/2009/08/25/health/policy/25zeke.html

On Congress, Obama and the Lobby.

Leading a modern American Congress to populism, or for that matter any basic and fair reform, would be like molding a prison yard of child molesters into good grade school schoolteachers. We have been reduced to a nation on the dole.

Here is a case where NYT columnist Frank Rich has accurately sensed the underlying current: everyone in power is addicted, and everyone without power is an unwilling enabler.

The question is quickly becoming: if not Obama and his new executive powers and solid foundations, then how massive must the forces be to undo it all?

Save us from socialism. Oh, wait...

I live, work and thrive in a market economy and I am not a socialist.

But today a read a message from a good friend who said "socialism is trickle up poverty"; a clear rebroadcast of a throbbing theme from AM radio or cable news.

So I wondered. Could he be right? Or do my Swedish friends know something that we don't? Is socialism a scourge or a bastion?

The book At the Front Lines of Medicine (2004) by Dr. Howard Waitzkin helps clear things up for me.

On nearly every measure people in socialist countries lead better lives than people in capitalist countries. Physical Quality of Life (PQL) is a composite index that the author uses to measure political-economics, socioeconomics and health. It shows us that people in socialist countries are better educated, have greater access to doctors and teachers, eat better, have schools and jobs and yes, live longer. The data is attached below.

The conclusion has anecdotal support as well. On a recent trip to the Nordics, I found clean, crime-free, free moving, integrated cities with top-notch schools, low unemployment and high wages. Last night I talked with a 45-year-old Finn who told me he'd never seen marijuana. It seemed completely foreign to him. And his taxes are about the same as mine. Furthermore, businesses and entrepreneurs in these countries thrive in global markets. Think Nokia, Volvo and Linux.

Admittedly, Dr. Waitzkin doesn't tell us if more people have a chance to become wealthy in one environment vs. the other. I think that is self-evident. But he does point out that even the rich don't live as well in capitalist countries as they do in socialist countries.

So then I wondered, why do we fear socialism? I suspect it is for the same reason that we fear anything: we don't understand it.

Market Outcome of Liberal Ideas

Today Christine Todd Whitman reflects on Specter's defection from the GOP, and notes with sadness and perhaps a bit of fear that "...no president has had such power since 1937, when large Democratic majorities in Congress gave President Franklin Roosevelt tremendous leverage."

So I asked, is that a bad thing?

Measure on Real GDP per Capita, Roosevelt and his liberal majorities teed up the largest burst of unchecked prosperity in human history. Here are the facts. First, in the 40 years before and after 1937...


...and then the 70 years before and after 1937.



* Real GDP accounts for inflation.

If the tree-huggers are right

I'd be no place without debate. I depend on it for both my income and my sanity. Relish then, the discussions about global warming, or climate change, or whatever it will be called.

But call a double standard when seen. I see one.

For about 3,000 years and maybe more, we've lived with the unchecked assumption that we have a relief valve; a place after this to land softly if we uphold certain human constructs or with a thud if not. Call it heaven, and god-forbid I question its legitimacy. If for but a minute, consider that the valve is a mirage. This is all we get.

Is the heating of the earth from greenhouse gases debatable? Sure. So is, I suggest, the promise of life after death.

But when you put the two together, you find another human construct: an injustice.

A place to go gives us right to trample the place we are.

The way we use the idea of heaven is to direct our behaviors here: You land softly if you do as told, or at least apologize when you don't. But if the earth is heating and this is it, then there is will be no distinction between polluters and non-polluters in the easy way that we distinguish sinners and nons. No-one is off the hook. An apology is meaningless.

So if the priests are right, so be it. Dust answers. But if the tree-huggers are right, holler all you want, but it's time to get out of the way.

Reality

Perception is not reality.
Reality is reality.
Discourse makes it so.

- Nicholas Hayes -- April, 2009

The Key to Valued Action

Note: Wrote this for a business blog last year. Andy Grove's "Reign in the Chaos" article made me think it time to recall and republish. -ndh

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Since action is what creates value, what are the factors that lead to action? For all the behavioral and market study on the subject, it seems, we still don't agree. Here are some of the many expert opinions:

1.) Response to Pain

One view suggests that action depends on whether or not a problem is too large to comprehend, and whether or not there is real pain to motivate one to do something about it.

Tom Lowe, who studies mass responses to mass communication, says that once we are of the opinion that a situation is of a scale beyond our control, we stop in our tracks. Like a pointing dog paralyzed on a scent, we can't move until something else gives. In other words, even if we can imagine pain, we won't prevent it. It is not until we experience pain that we are motivated to move, and then our movements are often rash and instinctive.

One might suggest then, that this is really a discussion about how many ways we can do nothing or at least very little.

2.) Response to Risk

Dr. Peter Sandman, who works with public health officials, proposes that action connected to risk is driven by the simple formula

Risk = Hazard + Outrage.

... which leads to his idea that “When hazard is high and outrage is low, people under react; and when hazard is low, and outrage is high, they overreact”.

A few years ago, while evaluating the North American electric generator market for a client, we applied Dr. Sandman's formula to explain sales that had a clear negative economic value but still occurred, and accounted for a significant percent of the market that could only be explained in emotional terms.

Markets have a way of removing emotionally driven actions after a time.

This still doesn't explain motivation, or drive to act.

3.) Survival

Maslow's oft-cited hierarchy of needs suggests that if you are fed and warm, and if have a support group and some self-confidence, only then you are in a position to attack and solve problems. It's an old idea that doesn't hold up to scrutiny: What explains when people solve the problems of hunger and cold? Surely the Inuit didn't depend on a well-fed, well-educated consultant to help them decide upon ice as a building block for a warm home. Or better, what inspires entrepreneurship, and all of its inherent risks to self? Why would someone bet a career on an unproven idea? What explains the existence of creativity and problem solving in both urgent and non-urgent situations? Have we evolved these behaviors?

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Hmmmm. Obviously, not all decisions and subsequent actions are rote, in response to pain or fear, incorrectly proportioned or tied to the survival instinct. What else is there? Why do some teams always seem to be moving forward?

Wonder and wanderlust

Sometimes simple inquisitiveness -- the need to know -- drives us, and in the process of learning, we create. The chief characteristic of action-oriented companies is that they allow this to happen. They build cultures and systems that value probing and listening. They make room for trial and error in both their processes, and on their balance sheets. They look for people who are interested and willing to explore.

In times of unpredictable change, or when negative news is all we hear, it is important to remember that value comes from our desire to sort through problems and do something about them.

In both urgent and non-urgent situations, creative problem solving comes from understanding and associated confidence. Lacking that, we either speculate or grasp for straws.

The foundation for profitable action is understanding that doing is the natural consequence of thinking. If we take time to think, chances are we'll act.

- Nicholas Hayes

Rebooting into Safe Mode

Who hasn’t been talking about cutting back lately?

Sharp declines in confidence and spending are rippling through nearly every area of the economy, though there are some recent winners: Walmart, Autozone and Netflix, who all report higher sales and earnings. From these we can draw some basic behavioral conclusions: Americans are watching every dollar, fixing not replacing cars and we’re staying home.

We’ve rebooted. Into safe mode. You know, like Windows safe mode; that place that your PC takes you when it’s been compromised by some Godforsaken spam attachment. In safe mode, you can’t do much of anything: no wireless, no hi-res monitor, no media or email, no multi-tasking. Just a barren desktop waiting for someone to resolve the underlying issues.

There are two ways to look at this.

1.) My first response is to bitch about why there has to be a safe mode to begin with. If they (we) hadn’t turned the operating system (the banking system) into a monster, then safe mode wouldn’t be necessary.

2.) Then I breathe deeply and admit that, yes, I’m in safe mode. We all are, whether the programmers (banks and borrowers) screwed up or not. So what’s next?

• First, I take stock: Do I have all my files? (Are my family and friends still here?) Yes, mostly.
• What did I do to compound the situation? Which freeware was it? (Did I borrow too much? Did I ignore the risks?) Uh-huh
• Can I contain the damages? (What’s important? What can I control?) That’s clear.
• Now, what can I do to correct and prevent the problem? (How can I save more? How can I waste less? Who can help me? Who can I help? What votes do I regret? How will I vote in the future?) That’s clear too.

The question isn’t if will we reboot into normal mode again. The question is: “What is normal?” Folks, normal isn’t Walmart, Autozone and Netflix.

Normal is buying from people we know. Normal is sharing rides and neighborhoods. Normal is playing cards, or reading or going outside. That is how it was for thousands of years, and it is the way it will be again. It is only when we stopped doing these things that we skidded out of control.

Looks like either we’re going to be in Safe Mode for a while, or we’re going to start acting like humans again: cooperating, sharing and making sustainable choices. Operating systems can’t do what humans do; we can simplify, and it's always better when we do.

- Nicholas Hayes

Re-enlist the Boomers to Right Size

Sharp slowdowns in the last three months for orders for new equipment, from houses to cars to machines that do work, have manufacturers scratching their heads, rewriting forecasts, rethinking investments and reducing staffs. It seems like uncharted territory.

“Reflecting back, we can see that commerce essentially stopped for three weeks in December,” said one of our market research clients, “it has restarted, but at a much lower level than before.”

But while this slowdown came on with unprecedented speed and clarity, it remains just that, a slowdown, and events like it have happened before, albeit not with quite such haste. As always, it is better to look at larger trends to understand what can and should be done about it.

Some facts:

A systemic decline in U.S. automobile manufacturing has been ongoing for forty years. We only need to look at GM’s market share – which halved during the last twenty-five years of consolidation, global expansion and low-fuel costs – to understand why Detroit is such a mess. This didn’t start in December and it won’t end in ’09.

Related slowdowns in steel, paper, plastics, and chemicals have been rippling through the U.S. economy unchecked for decades, partly as a response to shifting car production, but also due to fundamental shifts in behaviors like the use of computers for business and commerce, and straining U.S. natural resources, specifically energy and labor.

We didn’t panic then, why panic now?

Underlying today’s bad news are bad habits and some simple demographics that are playing games with our national psyche. We’re arguing about whether or not to borrow on the future today, because all of the sudden, we don’t trust that we’ll have the will or the capacity to pay it back tomorrow. Our confidence is shaken. Why?

Two reasons:

1.) If there is a single defining attribute of an American product designed during the boomer years, it is that it is larger than it needs to be. Measured against any other culture, wealthier or poorer, boomer stuff is bigger. Our machines, our meals, our cities; all bigger per capita than anywhere in the world. What the rest of the world knows is that bigger isn’t better. In fact this recession has exposed the underlying truth that size costs and if you finance those costs, you create risk. In fact, the truth is the opposite: smaller is almost always better. It provides flexibility, speed, and assurance. LEAN teaches this, but we’ve never really gotten the message.

2.) There is one area where smaller is not better, and that is talent. Think back two short years to 2007 and the end of a decade of climbing commodities prices. During that period, we heard constant complaints from U.S. business leaders that there was a shortage of willing, skilled workers in the United States. What they were really saying is that they were caught in a talent shortage crisis, between checking out boomers, and a dearth of qualified replacements. This talent shortage persists even now, after many rounds of layoffs.

U.S. Census data explains the issue. Consider that the number of people entering the most productive career years, the years between 35 and 50, has declined during the last 10 years by 15 percent, while the number of people entering what we might call the sunset career years, 51 and up, has increased by 25 percent. From the perspective of the U.S. entrepreneur, this represents an enormous competitive disadvantage, and it feels as if they are running out of options. The good news is that the number of people who will enter the work force in the next decade is on the rise. But they are not ready yet, and they may not be, if we don’t lend them the educational support that they and we deserve.

So we have four negative forces: 1. Boomer stuff is big and the carrying costs are high, 2. Boomers want to work less, 3. There are not enough people in the age group that is generally willing to work more, and 4. The up-and-coming population isn’t getting the education to compete.

In fact, this recession may be just the ticket to return to a more balanced economic condition, but it will take a new view.

We boomers are going to have to step up again, and do what is necessary to rebuild our markets, along the way, making important choices: should we stay in the workforce to help renew it? Should we share some of the knowledge and wealth we’ve amassed in the last forty years to re-educate the next generation of American workers? Should we embrace the technologies and the resource limits of the day to help find the creative, smaller and more manageable solutions to our problems? If we say yes to these questions, then the American dream remains alive.

Consider too that if boomers agree to re-up one more time, they will do it under a new set of rules. Instead of resisting technology as they have, they must embrace it. Instead of seeing the 25-year old on their team as unqualified, they will see him/her as a source of creative problem solving with the skills to integrate smart technologies to redefine old processes.

Sharp slowdowns are temporary. At the end of this one is a leaner, smarter, less risky and more flexible and more productive US industry. Boomers and their kids and grandkids will have to work together to create it.

Markets will return; that is inevitable. We have people and they have aspirations, and businesses will have to help them meet them. The companies that will emerge stronger will be those that have embraced the obvious reality: that smaller is better, talented people are everything and technology and information enable both.

- Nicholas Hayes

The Sun Will Come Out, Tomorrow

It is impossible to receive the sun's reassuring warmth through thick clouds. But the human capacity to reason gives us the power and privilege to remind ourselves that the sun is still there.

Here is some simple reasoning to help see clear on this cloudy day. This is not economic Armageddon. This period can be simply explained as supply and demand exerting their leveling force in many markets that, for a time, were way out of balance.

• We had more capacity for lending than borrowers with the ability to return loans. Now we have fewer banks.
• We built too many houses. Now we have lower prices.
• We took on too much debt. We'll have to curb spending to pay it back.
• We had more production capacity than customers for cars. Soon we'll have less.

These are the ugly realities of 2008. Our ability to emerge from this dark period depends squarely on two truths:

1. Only people can change things. Progress is rooted in applied human ingenuity or human energy.
2. Growth happens when assets - technological, financial, fixed and especially human - are moved from low to higher valued uses.

Companies that emerge stronger will be those that use this time to rethink and renew processes, reconnect with their customers, reach new markets, redesign their products and services and most importantly, renew their commitment to their best people through education and training.

People who emerge stronger will be those who use this time to rethink what is important, rebuild valuable relationships, take stock of their own skills and capabilities, build new skills and get new training, share their ideas to help solve problems.

While it may feel as if these clouds will never pass, the sun will return, and it will rise in the same place on the horizon as it always does. Likewise, economic strength will return, and it will rise from the same place as it always does: from people and their ideas, put into practice to the benefit of other people.

- Nicholas Hayes